During the dot-com era in 1999, Intel, along with Microsoft, was one of two technology companies included in the Dow Jones Industrial Average. Now its shares are falling in price at a tremendous speed, and this could cost the American chip manufacturer its place in the blue chip index.
Image source: Rubaitul Azad / unsplash.com
Analysts believe Intel is likely to be removed from the Dow Jones index: its shares have lost 60% since the beginning of the year, the worst performance among index members, and the company has the lowest share price. Exclusion from the index will further worsen Intel’s already tarnished reputation. The company missed out on the artificial intelligence boom by refusing to invest in OpenAI, and is struggling to overcome losses in its semiconductor contract manufacturing unit, which it had hoped would compete with TSMC.
To raise funds for the restructuring, Intel suspended dividend payments and announced cuts that would affect 15% of its workforce. But analysts and a former board member say the moves may be too little, too late. S&P Dow Jones Indices, which manages the Dow Jones index, declined to comment on Intel’s prospects. Changes to the index are made as needed, most recently in February when Amazon replaced struggling pharmacy chain Walgreens Boots Alliance.
The dynamics of Intel shares are much lower than the movements of the index. Image source: reuters.com
The key criterion for inclusion in the Dow Jones is stock price, unlike the S&P 500, which takes into account the market value of companies. The stock selection committee monitors whether the most expensive security is more than 10 times larger than the cheapest. Currently, UnitedHealth Group shares are the highest weighted in the index, at about 29 times the price of Intel shares. The chip maker is also the least influential member of the index with a weight of 0.32% – its shares closed at $20.13 on August 29. The exception will hit both the reputation and the company’s share price – they have already lost more than 70% from the all-time high reached in August 2000. For the first time in more than 30 years, Intel’s market value dropped below $100 billion.
The cheapest stocks in the Dow Jones index. Image source: reuters.com
The question remains about which company can replace Intel in the Dow Jones index. For example, Nvidia shares are up more than 160% this year on the back of the generative AI boom; The company completed a stock split in May, which also increases its chances of inclusion. However, analysts note that Nvidia shares are extremely volatile, while the Dow Jones prefers more stable assets. A more likely candidate appears to be nearly 100-year-old Texas Instruments, whose shares are up more than 20% this year, to $211.09 as of Thursday, close to the average Dow Jones stock price of about $209. This is an important aspect, notes David Blitzer, who chaired the S&P Dow Jones Indices committee for more than two decades until 2019.